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Case 5:05-cv-00233-XR Document 415 Filed 01/14/11 Page 1 of 17

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF SAN ANTONIO DIVISION

FRANK STOFFELS, ET AL, ) ) Plaintiffs, ) ) VS. ) Civil Action No. SA-05-CA-233-XR ) SBC COMMUNICATIONS, ET AL., ) ) Defendants. ) ) )

ORDER On this date, the Court considered SBC Communications, Inc.’s Motion for Reconsideration of Interlocutory Memorandum Opinion Dated May 21, 2008 (docket no. 378), and the Response and Reply thereto. The named Plaintiffs in this class action lawsuit are all individuals who worked for and retired from SBC or an SBC subsidiary. Judge Justice previously bifurcated this case into two phases. Phase One focuses solely on the question of whether reimbursement for services obtained by out-of-region retirees (known as “OOR Retiree Concession”) is an ERISA pension plan. On November 26, 2007, Judge Justice empaneled an advisory jury and held a trial on the question of whether OOR Retiree Concession is an “employee benefit plan” within the meaning of ERISA. On May 21, 2008, he issued his interlocutory fact findings and conclusions of law, in which he held that OOR Retiree Concession was an ERISA pension plan. The case was subsequently transferred to the Undersigned Judge. SBC then moved for reconsideration of Judge Justice’s May 21, 2008 Order, asking the Court to enter judgment that the telephone service reimbursement provided to out- of-region retirees is not an ERISA pension plan as a matter of law. I. Background A. Defendant SBC Prior to 1984, American Telephone & Telegraph Co. (“Bell”) was the parent corporation of the “,” which through various subsidiaries and affiliated entities controlled over 80%

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of all U.S. , over 98% of all long-distance telephone lines in the , and manufactured over 90% of all U.S. telephone equipment. (JS ¶ 6.) A federal court ordered the divestiture of Bell and its regional operating companies, known as the Regional Bell Operating Companies (“RBOCs”), effective January 1, 1984. (JS ¶ 7.) The RBOC’s were: (1) Corporation, (2) Bell Atlantic (now ), (3) BellSouth Corporation, (4) NYNEX (now Verizon), (5) Group (“PTG”), (6) Telephone (“SWBT”), and (7) U.S. West (now ). Id. In 1995, SBC Communications, Inc. was established as a holding company for SWBT, which provides telephone service in , , , , and Texas. (JS ¶ 8.) SBC Communications, Inc. acquired the following companies on the following dates: In 1997, SBC acquired PTG, which was the parent company to and Telephone Company; in 1998, SBC acquired Southern New England Corporation, which was the parent company to the Southern New England Telephone Company1; and in 1999, SBC acquired Ameritech Corporation, which was the parent company to , Telephone Company, Telephone Company, Telephone Company, and , Inc. (JS ¶ 9.) In 2005, SBC Communications Inc. acquired AT&T Corporation (“Bell”), and SBC Communications, Inc. changed its name to AT&T, Inc. (JS ¶ 10.) AT&T, Inc. merged with BellSouth in late 2006. To avoid confusion, Defendant will be referred to in this Order as SBC or SBC Communications. B. Plaintiffs The named Plaintiffs in this class action lawsuit are all individuals who worked for and retired from SBC or an SBC subsidiary. As found by Judge Justice and set forth in the parties’ Joint Statement of Undisputed Facts (“JS”) (docket no. 253), Plaintiff James Belcher is a retiree of (a subsidiary of Ameritech Corporation). (JS ¶ 1.) Plaintiff Belcher was employed by Illinois Bell from August 1956 through April 1982 and retired with a Service Pension in 1982. Id. Plaintiff

1 Prior to its acquisition by SBC Communications, Inc., the Southern New England Telephone Company (“SNET”) was an incumbent and not subject to the Modification of Final Judgment that required Bell to divest itself of its local exchange monopolies. (JS ¶ 11).

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Burnie Joe Dunn is a retiree of SWBT. (JS ¶ 2.) Plaintiff Dunn was an employee of SWBT from August 3, 1959 through December 31, 1990, and retired with a Service Pension in 1990. Id. Plaintiff Jack Giuliani is a retiree of Pacific Bell Telephone Co. (JS ¶ 3.) Plaintiff Giuliani was employed by Pacific Bell Telephone Co. from 1962 through 1992, and retired with a Service Pension in 1992. Id. Plaintiff Frank E. Stoffels is a retiree of Pacific Bell Telephone Co. (JS ¶ 5.) Plaintiff Stoffels was an employee of Pacific Bell from 1970 to 1996, and retired in 1996 with a disability pension. Id. Plaintiff Linda Villafane retired from Illinois Bell on January 31, 2001. (JS ¶ 6.) Plaintiff Villafane was employed by Illinois Bell from 1971 until her retirement. Id. C. Plaintiffs’ claims/Background It is undisputed that “Telephone Concession” is a long-standing practice of offering discounted telephone services to telephone industry employees, that Telephone Concession was established by the former AT&T company (“Bell”), and that Telephone Concession was continued by the RBOCs after divestiture. The history of AT&T’s telephone concession program through divestiture, and its continuation by BellSouth Corporation after divestiture, was discussed at length in this Court’s opinion on summary judgment in Boos v. AT&T, Inc., 07-CV-727, a case involving similar claims to this case. After divestiture, because each independent telephone company had a limited service area, it could (and did) provide discounts on its own service to employees and retirees who lived within its service area, but could not provide such discounted service to employees and retirees who lived outside its service area. As a result, each company provided some form of reimbursement to employees and retirees who lived outside its service area who purchased phone service from another company, referred to as out-of-region (“OOR”) Concession. It is the reimbursement provided to OOR Retirees that is at issue in this lawsuit. As explained above, SBC was the holding company for SWBT and later acquired Ameritech and PTG (SWBT, Ameritech, and PTG were part of the Bell divestiture), and also SNET (which had been an independent company) as of late 1999, before Plaintiffs filed this suit. Thus, each of those companies’ concession plans are relevant in this case. The details of the various OOR Retiree Concessions among the companies varied. Before the year 2000, each subsidiary had separate contracts with a third party benefits administrator to administer OOR retiree reimbursement, but in 2000, administration of all OOR Retiree Concession was consolidated into a single contract between SBC and Acordia. Tr. 176-77.

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Further, effective February 1, 2003, a $25/month cap was placed on the amount of Concession available to all OOR Retirees. JS ¶ 18; Tr. 130; Pl. Ex. 268. In July 2005, OOR retirees were switched to a block of 600 minutes of free long distance provided by SBC in place of their reimbursements. Tr. 135-37; Pl. Ex. 39.2 Plaintiffs filed this lawsuit in March 2005, complaining about the reductions and changes in their OOR Retiree Concession benefits. Plaintiffs refer to “Telephone Concession” as “the promise and provision by SBC to provide either discounted local and Intralata3 telephone service for In-Service Area Employees and Retirees or a cash reimbursement to Out-of-Service-Area Employees for local and Intralata telephone service paid to an Independent Telephone Company.” Plaintiffs bring an enforcement action pursuant to section 502(a)(1)(B), (a)(2), (a)(3), and (c)(3) of ERISA. According to the Complaint, “[t]he fundamental premise of this lawsuit is by informing employees that they would receive the Telephone Concession when they retired with a Service or Disability Pension, and by providing the Telephone Concession to retirees who lived outside the SBC Service Area (and received telephone service from an Independent Telephone Company) Defendant SBC (and its predecessors) have established and maintained a ‘defined benefit plan,’ the SBC Telephone Concession Plan, within the meaning” of ERISA. Thus, Plaintiffs contend that Telephone Concession provided to out-of-service-area retirees (“OOR Retiree Concession”) is a defined benefit plan. D. Judge Justice’s Interlocutory Memorandum Opinion In his fact findings and conclusions of law, Judge Justice found, among other things, that OOR Retiree Concession was separate from OOR employee Concession4; that the benefits and class

2 Plaintiff Villafane testified that, in 2004, she had been required to sign up for a discounted 500-minute block of long distance through SBC as a condition of continuing to receive her Concession reimbursement. Tr. 133-34; Pl. Ex. 38.

3 Intralata is commonly referred to as “local long distance” service.

4 The Court notes that Judge Justice often referred to OOR Retiree Concession as “Concession.” However, the Court finds this terminology to be potentially confusing because “Concession” was the practice of providing discounted telephone service to all active employees and qualifying retirees, and involved in-region employee concession, OOR employee concession, in- region retiree concession, and OOR retiree concession. In discussing Judge Justice’s Order, the Court has used the term OOR Retiree Concession for clarity.

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of beneficiaries for OOR Retiree Concession was clearly ascertainable; that at least one of the purposes of OOR Retiree Concession was to provide retirement income, though it may also have been initiated to create goodwill; that OOR Retiree Concession provided retirement income and, in so doing, promoted good will; that while AT&T may have initiated OOR Concession in the 1920s as an attempt to treat OOR Retirees and in-service retirees equitably, Defendant provided OOR retirees with something substantially different than it did retirees within service regions because OOR retirees did not receive an in-kind discount, but rather cash pay; that Defendant provided OOR retirees with regular income during their retirement; that SBC’s provision of cash to OOR retirees was distinct from its provision of discounted services to in-region employees and retirees; that Defendant and its predecessors repeatedly indicated that OOR Retiree Concession was intended to provide retirement income, and AT&T and the RBOCs made representations that led Plaintiffs to reasonably believe that Concession constituted a part of their benefit package and retirement income; that Concession was included in information provided to Plaintiffs about their benefits, and though it was listed in the “other retirement benefits” section of the pamphlet provided to Plaintiffs, it was the only benefit that resulted in regular payments starting at retirement; that Plaintiffs received W-2s for the payments, which indicates that the payments were considered income; that OOR Retiree Concession was clearly designed to provide cash payments to OOR retirees once they had retired and met the Rule of 75 and was therefore intended to provide retirement income; that Defendant maintained OOR Retiree Concession; that OOR Retiree Concession was structured separately from other segments of the telephone discount and should be analyzed as a distinct plan; that the administration of OOR Retiree Concession was separate from the administration of active employee telephone discounts; that SBC consolidated the concessions offered retirees by the RBOCs and hired Acordia to administer OOR Retiree Concession, and Acordia’s only duty was to administer OOR Retiree Concession; that in accordance with SBC’s consolidation of OOR Retiree concessions offered by each RBOC, the term “OOR Concession plan” was used specifically to “refer to the cash reimbursements that out of region/out-of-franchise retirees were receiving”; that based on the weight of the credible evidence, OOR Retiree Concession is distinct from any discount services offered to active employees and must be analyzed separately. Viewing OOR Retiree Concession as a separate plan, Judge Justice concluded that it met the elements of an ERISA pension plan.

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E. This Court’s Order in Boos v. AT&T and Defendants’ Motion for Reconsideration After Judge Justice made his Phase I findings and conclusions, the case was transferred to this Court in February 2009, along with the related case of Boos et al v. AT&T (07-CV-727). Boos, a later-filed case, was at the summary-judgment stage at the time it was transferred. The parties in Boos had cross-moved for summary judgment on the issue of whether OOR Retiree Concession in that case was an ERISA pension plan. After the transfer, Defendant AT&T moved for reconsideration of Judge Justice’s Phase I Order, arguing that the plaintiffs in Boos were contending that the issue could be decided as a matter of law, and that Judge Justice had erred in his Order. Before ruling on the motion for reconsideration in this case, this Court issued an order on the cross-motions for summary judgment filed in Boos. In that Order, the Court concluded that OOR Retiree Concession had to be evaluated as part of retiree concession as a whole because retiree concession, both in-region and out-of-region, was governed by the same plans, all retirees were promised the same benefit, and because retirees could move between in-region and out-of-region concession (i.e., the two groups were not discrete). The Court found that retiree concession had always intended to provide and did provide the benefit of discounted telephone service, but that the method of providing that benefit to OOR retirees differed because they were physically unable to received discounted telephone service from their employer. Further, when viewed as whole, the undisputed summary-judgment evidence was that SBC did not view retiree concession as taxable income, though it might have resulted in taxable income to the small portion of OOR retirees receiving concession through cash payments. Thus, based on the summary-judgment evidence, this Court found that the OOR Retiree Concession in Boos was not an ERISA pension plan.5 Given its conclusions in the Boos case, the Court asked for and received supplemental briefing from the parties regarding the application of the Court’s conclusions in Boos to this case. Defendants assert that the same reasoning this Court applied in Boos applies in this case, while Plaintiffs contend that this case is factually distinct. The parties also dispute whether reconsideration of Judge Justice’s Order is appropriate in the first instance. F. Applicable Standard The exact standard to apply to the Motion for Reconsideration at this stage is unclear. The

5 That Order is currently on appeal.

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Federal Rules of Civil Procedure do not recognize a “motion for reconsideration” by that name. See Lavespere v. Niagara Mack & Tool Works, Inc., 910 F.2d 167, 173 (5th Cir. 1991), abrogated on other grounds by Little v. Liquid Air Corp., 37 F.3d 1069, 1075 n.14 (5th Cir. 1994) (en banc). However, Rule 54(b) provides that “any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities.” Thus, because Judge Justice’s order is interlocutory, it appears that this Court “is ‘free to reconsider and reverse [the] decision for any reason it deems sufficient, even in the absence of new evidence or an intervening change in or clarification of the substantive law.’” Saqui v. Pride Center America, LLC, 595 F.3d 206, 210-11 (5th Cir. 2010) (quoting Lavespere, 910 F.2d at 185); Jackson v. Roach, 364 Fed. App’x 138 (5th Cir. 2010) (noting that when order issued by the “first judge” was interlocutory, the “second judge” could reconsider the motion and vacate the first judge’s order for any reason it deemed sufficient); see also Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 284 (5th Cir. 1993) (citation omitted)(“The revisitation by the court of [an] earlier order ... was not error because ... a court may correct its own errors. The fact that [the judge] was not correcting his own error, but that of another judge who initially had been in charge of the case, is no moment.”). However, none of the cases the Court has located involve post-trial fact findings and conclusions of law, but instead involve reconsideration of denials of motions to dismiss and motions for summary judgment. The Court has been unable to find a decision applying that standard to a motion for reconsideration of an interlocutory order of fact findings and conclusions, since such orders are usually issued in conjunction with a final judgment. Rule 52 provides that “[f]indings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.” FED. R. CIV. P. 52(a)(6). However, this would not appear to apply to a district court’s setting aside of its own fact findings and conclusions of law upon reconsideration, but rather to some form of appellate review. Cf. Fed. R. Civ. P. 59(a)(2) (“After a nonjury trial, the court may, on motion for a new trial, open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new ones, and direct the entry of a new judgment.”). In any event, the Court notes that this case does not involve any real factual disputes. Rather, the

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real dispute is the legal effect of undisputed facts, which would not be subject to the clearly erroneous standard. Moreover, the Court need not address Plaintiff’s argument that reconsideration of Judge Justice’s Order was not justified simply because the case was transferred, because circumstances changed after this Court issued its order on summary judgment in Boos. The Court finds it highly appropriate to evaluate Judge Justice’s Order in light of this Court’s own order in Boos to ensure that the cases, which are now before the same Judge, are being consistently analyzed.6 II. Analysis The Court has reviewed the entire trial transcript and the evidence considered by Judge Justice, and finds, contrary to Judge Justice, that OOR Retiree Concession is not a separate plan for purposes of ERISA.7 In his fact findings and conclusions of law, Judge Justice repeatedly distinguished between active employee concession and retiree concession, but did not adequately consider whether OOR Retiree Concession could and should be evaluated apart from in-region Retiree Concession. As in Boos, however, the Court concludes that OOR Retiree Concession must be viewed as part of the larger Retiree Concession program because: both in-region and out-of- region retiree concession are governed by the same plans/policy documents; during their employment, retirees were not promised either in-region or OOR Concession, but were promised Concession (in other words, all retirees were promised the same thing), and the method of receiving Concession was dependent on the retiree’s residence at and after retirement; and OOR and in-region

6 Citing decisions by the Undersigned Judge, Plaintiffs argue that reconsideration of an interlocutory order is guided by the standards of Rule 59, and thus SBC must show an intervening change in controlling law, new evidence not previously available, or the need to correct a clear or manifest error of law or fact or to prevent manifest injustice. While this Court does often apply the Rule 59 standard to motions for reconsideration filed by parties before it, it does so because Rule 59 provides a useful standard. However, this Court is not bound to follow Rule 59 in motions for reconsideration of interlocutory orders, nor is it bound by any interlocutory orders entered by a transferor judge. Even if SBC had not moved for reconsideration, the Court would likely have reviewed the order sua sponte given its consideration of similar issues in Boos.

7 The Court acknowledges that it has only read the written transcript, and thus does not have the benefit of viewing live testimony, which Judge Justice did. However, the Court has noted that this case does not really involve factual disputes or credibility determinations. Where Judge Justice did make a credibility determination, the Court has given credit to that determination in its analysis.

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retirees are not discrete, immutable groups. For these reasons and because there is no evidence that OOR Retiree Concession was ever conceived of or intended to be a separate plan to provide a benefit or income apart from in-region retiree Concession, the Court finds that any “plan” for purposes of the ERISA analysis must include both in-region and OOR Retiree Concession. Viewing it as such, the Court finds that, based on the undisputed evidence, it was not intended to and did not provide retirement income. To begin, each of the telephone concession policy documents created and disseminated by the SBC companies governed both in-region and out-of-region concession. Norma Gonzalez answered “no” when asked “were there separate policy documents for in-region versus out-of-region telephone concession?” Tr. 500. This testimony is supported by the policy documents in evidence. For example, Defendant’s EX-19 is the 1997 “Telephone Concession Program” for Pacific Telesis Group. The policy states that “Pacific Telesis provides telephone concession service for employees and their immediate families for residence service purposes.” It further states that “Any active, term, temporary and retired employee is eligible for some form of telephone concession.” Defendant’s Ex-27 is the “Illinois Bell Telephone Company Employee Concession Telephone Service” general instruction dated January 1, 1988. It states, “This Instruction covers policies and procedures for granting concession telephone service at discounted rates to active and retired employees of Illinois Bell Telephone Company (IBT).” It covers both in-region and OOR service. Defendants’ Ex-39 is a “Southern New England Telephone Official and Employee Rate Service” administrative bulletin dated March 3, 1986. “This bulletin defines and covers the establishment of official business, official residence (including service and disability pensioners) and employee residence service furnished by this company at concessions from regular tariff rates. Provision is also made for telephone service furnished by other companies.” Def. Ex. 39 at SBC10903. Defendant’s Ex-10, the “SBC Telephone Concession Policy as in Effect on and after August 1, 1996,” also governs both in-region and OOR retiree concession.8 Thus, the evidence shows that each of the companies’

8 Over time, the companies began limiting OOR Concession. Thus, for example, the 1996 SBC Policy provided that employees receiving OOR Concession who retired on or after May 1, 1996 were grandfathered and would continue to receive Concession at the present location, but any change in residence (except a move back in-region) would result in the termination of Concession.

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concession plans/policies governed both in-region and out-of-region concession.9 The primary purpose/intent of Concession was to provide discounted telephone service to a company’s own employees and retirees.10 The telephone companies administered this form of Concession themselves, by discounting the price of telephone service on employees’ and retirees’ phone bills. See, e.g., Tr. 304 (SNET administered in-region concession through the billing system). For employees and retirees living outside of the company’s service area, concession via reimbursement was provided as a matter of parity because it was physically impossible for the company to provide its own service at discounted rates. See Tr. 328 (testimony of R. Poe that OOR Concession was provided as a matter of goodwill); Tr. 600, 607 (testimony of G. Fraundorfer that OOR Concession was about parity, equity, and fairness). However, in-region concession was always the default, and any move back into a company’s service region would terminate OOR concession and trigger in-region concession. See, e.g., Tr. 508 (testimony of N. Gonzalez that if SBC local service is available, retirees must use SBC service to get concession); Tr. 516 (testimony of N. Gonzalez that providing in-region concession was “our first choice always”); Def. Ex. 10. Thus, OOR Retiree Concession was provided only when and if the Retiree was unable to receive in- region Concession.11 During their employment, retirees were promised the benefit of Concession if they met

9 See also, e.g., Defendants’ Exhibits 2, 12, 16, 20, 23, 27, 28, 35, 39, 45.

10 See, e.g., Tr. 600-606 (testimony of G. Fraundorfer); Tr. 496 & Pl. Ex.-365 (noting that “Through our concession programs, the company encourages eligible employees and retirees to use SBC products and services when they are available to them so that they are familiar with our product line.”); Tr. 515 (testimony of N. Gonzalez that “the whole purpose of the concession was to have employees and retirees use our product and service whenever we could give it to them or provide it to them. It was the whole impetus for the whole concession plan.”) Tr. 288 (testimony of L. Zilinskas that concession was “a discounted telephone service”); Def. Ex. 39 (noting that “[c]oncession service is provided for the benefit of the company’s business ....” and that it involved residence service “furnished by this company at concessions from regular tariff rates”); Def. Ex. 50 (“The practice of providing concession on employees’ telephone service began to insure that the needs of the Company would be met and employees could be reached to remedy service outages after hours. Since divestiture, the purpose for continuing to provide concession on employees’ (and retirees’) telephone service is to advertise our products and services to potential customers.”).

11 Judge also Justice recognized that OOR Concession was an attempt to treat OOR Retirees and in-region Retirees equitably. Order at 11.

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certain eligibility requirements at retirement (generally, retiring with a service or disability pension).12 Plaintiff Linda Villafane acknowledged that all retirees were promised the same benefit – concession, or discounted telephone service: “Whether you’re in region or out of region, your benefits would be the same. The method of reimbursement differs, but not the process, to my understanding.” Tr. 161. The method of providing the benefit differed depending on whether the retiree was in-region or OOR. For example, Defendants’ Exhibit 17, a 1984 Pacific Bell and Nevada Bell “system instructions” document state that “Concession applies on certain services which are provided by Pacific Bell and Nevada Ball. It will also apply to the same services which are provided by another company for an active or retired employee.” SBC0000407. It further states that “[e]mployees, whose telephone service is provided by another company, are entitled to concession. The concession is handled in a different manner from the way Pacific Bell or Nevada Bell concession service is handled. . . . In order to simplify the procedure, employees whose telephone service is provided by another company will receive a fixed monthly payment based on the class of concession the employee is entitled to receive.”13 There is simply no evidence that any of the companies ever devised an independent plan to provide retirement income to OOR Retirees by reimbursing them for the cost of telephone service they obtained from other companies. Rather, OOR Retiree Concession was offered as a matter of

12 See, e.g., Tr. 300 (testimony of L. Zilinskas); see also Pl. Ex. 47 (“SBC provides concession service for retirees who live within and outside the SBC affiliate territory if they meet certain eligibility requirements.”).

13 Plaintiffs argue that, unlike Boos, in-region and OOR retirees did not receive the same benefit because the majority of SBC OOR Retirees received fixed monthly or quarterly payments unrelated to the actual costs incurred for telephone service. And, eventually, in-region Retirees received “SBC@home,” worth between $75-$100, which was not available to OOR Retirees, who received much less in cash reimbursements. However, as noted, all similarly situated employees were promised the same thing – some form of concession. OOR Retiree Concession was intended to reimburse employees for part of the cost of obtaining telephone service, just like in-region Concession, and was generally intended to approximate the value of the Concession discount given to in-region Retirees, though for ease of administration and due to cost factors, it did not always do so. The evidence remains that, at least initially, the companies were attempting to give OOR Retirees an equivalent benefit to in-region retirees. The fact that OOR Concession diminished over time and became less equivalent does not support Plaintiff’s case that it was developed as a separate plan to provide retirement income to OOR Retirees.

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parity if and when in-region Concession could not physically be offered. Plaintiff Villafane testified that SBC could not provide local or long distance service to her until 2005, but then she began receiving SBC long distance as her form of concession. Tr. 168-69. Carol Winstead of AT&T testified that, in 2005, OOR Retiree Concession moved to a 600 minute block of long distance from SBC “[b]ecause we were able to now offer the long distance service and the company was able to provide it for those retirees.” Tr. 282. Karen Jennings of SBC testified that the switch to the 600- minute block was “perfect” because it “did really get [SBC] back to the original intent of concession, which is giving our employees and retirees our services and our products at a discount.” Tr. 462-63. Plaintiffs attempt to distinguish the facts in this case from Boos in their favor by arguing that retirees could not move fluidly between in-region and OOR Concession, noting that only those SBC retirees who had already established service outside the SBC service area by certain dates were eligible to receive OOR Concession as a retiree. But this evidence only reinforces the conclusion that in-region Concession was the preferred, default benefit for Retirees – all Retirees were eligible for in-region Concession – while OOR Concession, which was provided initially as a matter of parity, was being phased out. Further, like in Boos, OOR Retiree Concession was not a separate, discrete group from in-region Retiree Concession because any OOR Retiree could move and become an in-region Retiree and receive in-region Retiree Concession.14 Similarly, as in Boos, SBC’s service area could expand or contract and result in a change in a retiree’s status as in-region or OOR. To find that OOR Retiree Concession was a separate plan, Judge Justice considered the fact that “[OOR Retiree] Concession was structured separately from other segments of the telephone discount” and that “SBC consolidated the concessions offered retirees by the RBOCs and hired Acordia to administer Concession.” Order at 15. Judge Justice found that, following its acquisition of other companies, “SBC began consolidating the various programs providing OOR Retiree Concession and creating a uniform policy across the regions” and, as part of this consolidation, “hired a third party administrator, Acordia National, for the sole purpose of administering

14 See, e.g., Def. Ex 29 (a September 25, 1990 letter revising concession service policy, stating that “[e]mployees who at retirement have concession service and already reside outside the Ameritech local serving area will keep their concession until a later move to a non-Ameritech area. These retirees would regain their concession eligibility if they were to relocate within the Ameritech local service area.”); Def. Ex. 10 (1996 SBC policy).

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Concession.” Id. He further noted that SBC sought to adopt “one consolidated tax policy” for the different programs and created a single document, the “Out of Area Concession Eligibility Rules” by which Acordia applied data supplied by SBC to determine eligibility for OOR Retiree Concession. Id. He found that, in accordance with SBC’s consolidation of OOR Retiree Concessions offered by the different companies, the term “OOR Concession plan” was used specifically to “refer to the cash reimbursements that out-of-region/out-of-franchise retirees were receiving” and Gwen Melvin-Neloms of SBC was sometimes referred to as the “OOR Concession Director.” Id. at 15-16. Judge Justice also relied on a deposition admission by Norma Gonzalez that the “provision of cash [reimbursements] to OOR retirees was distinct from its provision of discounted services to in-region employees and retirees.” Order at 11. Norma Gonzalez is the Executive Director of Human Resources for SBC. At trial, when asked whether she viewed OOR Retiree Concession as a different program than in-region Retiree Concession, she stated “[t]hey were all in the same policy, but there were distinctions between the programs.” Tr. 481; see also Tr. 482 (“It was the same telephone concession policies of the respective regions. They were both covered under that policy.”). Plaintiffs’ counsel then asked Gonzalez about her deposition testimony, where she was asked “do you consider in your mind a plan that provides benefits to out-of-service area retirees separate from a plan that provides benefits to in-service retirees?” and answered “I personally saw them as different.” Tr. 483. When questioned about this testimony at trial, Gonzalez stated that, in her mind, “there might have been one policy, but separate programs.” Tr. 484. Gonzalez also admitted stating in a letter that “[t]hose retirees located in areas in which SBC products and services are not available, i.e., out-of-region retirees, do not receive the same concession program as in- region retirees, but rather are eligible for concession reimbursement.” Tr. 486. Gonzalez testified that it was “a separate type of concession.” Tr. 486. She further explained “both the in-region and the out-of-region employees and retirees received concession, but there were – what they received were different because of the fact that SBC did not provide the same products and services outside of our traditional territory, and thus we provided reimbursement for their basic telephone line and services of $25 a month, and that was in the same policy as the in-region.” Tr. 487. She stated that the difference in her deposition testimony was “a matter of interpreting the plan versus the policy.” Id. In his Order, Judge Justice chose to credit Gonzalez’s deposition testimony and not her

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“backtracking” trial testimony. Plaintiffs also rely on the fact that OOR Retiree Concession was separately administered, and that all of the different reimbursement plan criteria were consolidated into one document entitled Out of Area Concession Eligibility Rules.15 Even accepting the above undisputed facts and Judge Justice’s credibility determination concerning Gonzalez’s testimony, the Court concludes that OOR Retiree Concession is not a separate plan from in-region Retiree Concession. Clearly, OOR Retiree Concession is “different” or “distinct” insofar as the benefit is provided via reimbursement rather than direct discount and therefore requires different administration. Gonzalez’s deposition testimony is no “smoking gun.” As this Court concluded in Boos, the fact that the method of providing the Concession benefit differed and that it was separately administered as a result does not make OOR Retiree Concession a separate and independent plan from in-region Retiree Concession, given the other factors and evidence discussed above. Further, the consolidation was an attempt to ease administration and create uniformity among OOR Retirees, but again there is no evidence that this was some independent plan to provide retirement income to OOR Retirees by reimbursing them for telephone services purchased from another company. In fact, the evidence is that during that time period, SBC was considering ways to reduce or eliminate the OOR Retiree Concession altogether, not trying to create or implement a plan to provide retirement income to OOR Retirees. Thus, none of the factual differences between this case and Boos require a different analysis than this Court used in Boos, and the Court finds that in-region Retiree Concession and OOR Retiree Concession must be considered together. As this Court found in its decision in Boos, to be a defined benefit plan as urged by Plaintiff, Retiree Concession must have been designed to and must actually provide retirement income. Boos Order at 13 (citing Murphy v. Inexco Oil, 611 F.2d 570, 575 (5th Cir. 1980) (stating that “the words ‘provides retirement income’ patently refer only to plans designed for the purpose of paying

15 Plaintiffs contend that Judge Justice “found that there was a separate policy document entitled Out-of-Area Concession Eligibility Rules’ that governed the SBC OOR Retiree Concession.” This document was simply a summary of the different eligibility criteria for Acordia to use. It was not a separate policy document evidencing an intent to create a benefit plan for OOR Retirees – the document itself states under “Purpose” that “SBC provides concession service for retirees who live within and outside the SBC affiliate territory if they meet certain eligibility requirements.”

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retirement income whether as a result of their express terms or surrounding circumstances”)). Further, this Court concluded in Boos that Schwegmann directs that we consider the benefit’s status as taxable income in determining whether the benefit at issue provides retirement income. Order at 21 (citing Musmeci v. Schwegmann Giant Super Markets, Inc., 332 F.3d 339 (5th Cir. 2003)). While it is undisputed that Defendants recognized that reimbursement to post-divestiture OOR Retirees would be considered taxable income,16 it is also undisputed that OOR Retiree Concession was only a small part of the Retiree Concession program,17 and the undisputed evidence was that the overall program was not designed to or intended to provide taxable income. Rather, the bulk of retiree concession was in-region retiree concession, which was considered a non-taxable, “no- additional-cost” fringe benefit. For example, the contract between SBC and Acordia, the company hired to administer OOR Concession, states that “[s]tandard reimbursements for services received from one of the SBC wire line telephone companies (Ameritech, Nevada Bell, Pacific Bell, Southern New England Telephone, southwestern Bell or SBC Telecom) are not taxable to the recipient.” Pl. Ex. 17 at SBC0024766. It further states that “[s]tandard reimbursements paid to retirees receiving telephone service from a non-affiliated company are taxable to the retiree (they do not qualify under the fringe benefit rule). Employees who retired after 12/31/1983 [post-divestiture] and began receiving taxable telephone concession are subject to Social Security (6.2%) and Medicare (1.45%) withholding on concession

16 See, e.g., Tr. 143 (testimony of L. Villafane); Tr. 249 (testimony of G. Melvin-Neloms); Def. Ex. 19, 27, 28. Plaintiffs received W-2's from “Concession Telephone Service Plan” (but received 1099-R’s for their pension benefits). P-29 (Dunn); P-30 (Giuliani 2001-2005); P-31 (Stoffels 2002-2005); P-45 (Villafane 2001-2005). Pre-divestiture OOR Retirees did not receive W-2s, and their Concession was not taxable. Tr. 225. Plaintiffs cite this as an important distinction from Boos, since BellSouth only treated OOR Concession as taxable after the merger with SBC. However, the Court did not find this factor to be dispositive, and in fact recognized that OOR Concession provided a taxable benefit. See Boos Order at 27 (“The fact that a small portion of the retirees receive a taxable benefit does not render that portion of the plan an ERISA pension plan.”).

17 The number of retirees receiving OOR Concession as of January 31, 2003 was 25,092 (8,088 pre-divestiture and 17,004 post-divestiture). Tr. 578; see also P. Ex-340 (April 13, 2004 email stating “130,608 retirees participating in a telephone concession program of which approximately 25,000 (19%) are out of region/out of franchise retirees.”). Gary Fraundorfer testified that the great majority of retirees were in-region, estimating that out of “probably a couple hundred thousand retirees,” about 20,000 were OOR. Tr. 613.

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payments.” Pl. Ex. 17 at SBC0024767. Further, Defendants’ Ex-40, a February 2003 Retiree Newsletter, states that “[a]ll SNET retirees continue to be eligible for telephone concession service during any period of time the retiree’s primary residence is in areas serviced by SNET. It is our understanding, based on IRS regulations, that telephone concession within SNET’s service area is a fringe benefit that is not subject to taxation.” Plaintiff’s Ex. 183, a February 26, 1990 letter regarding accounting for retiree telephone concession as an “Other Postretirement Employee Benefit”18 in the financial statements for Ameritech, states Ameritech’s “current tax position . . . that the provision of local telephone service to eligible active and retired employee within our service area is a ‘no-additional-cost’ fringe benefit under IRC Sec. 132(b).”19 Thus, as in Boos, it appears that in-region concession was viewed as a non-taxable fringe benefit under the no-additional-cost-service exception and Plaintiffs have provided no evidence that SBC did not believe its in-region concession qualified as a no-additional-cost-service or consistently treat it as such, that it did not qualify, or that it has ever been treated as taxable income by the IRS. See Boos Order at 25. Conclusion Thus, as in Boos, the Court finds that all Retiree Concession must be viewed as a whole and, in doing so, the undisputed evidence is that SBC did not intend to provide retirement income to retirees in the form of Concession. Accordingly, the Court finds that OOR Retiree Concession is not a pension plan, vacates that portion of Judge Justice’s fact findings and conclusions of law that are to the contrary, and substitutes the findings and conclusions contained in this Order. Defendants’ Motion for Reconsideration (docket no. 378) is GRANTED. As a result, judgment shall be rendered in favor of Defendants. The Clerk’s office is directed to enter a final,

18 SBC never accounted for OOR Retiree Concession as a pension benefit. It always accounted for it as an “other retirement benefit.”

19 See also Defendants’ Exhibit 40, which states, “[e]ffective January 1, 1993, SNET is revising its policy on telephone concession for retirees who live outside areas serviced by SNET as described below. When employees who retired on or after January 1, 1984 (post-divestiture retirees) move out of SNET’s calling area, Internal Service Regulations require that this benefit be taxable to these retirees because SNET cannot provide the benefit as a ‘No-Additional Cost’ benefit. Therefore, since SNET can no longer provide this benefit in a tax effective manner to post- divestiture retirees ....” SBC0010895.

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take-nothing judgment pursuant to Rule 58 and to close this case. All other pending motions (including specifically docket nos. 408 and 411) are DISMISSED AS MOOT. It is so ORDERED.

SIGNED this 14th day of January, 2011.

______XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE

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